Do Equity Short Sellers Anticipate Bond Rating Downgrades?

2010 ◽  
Author(s):  
Tyler R. Henry ◽  
Darren J. Kisgen ◽  
J. (Julie) Wu
Keyword(s):  
Bond Rating ◽  
Short Sellers ◽  
Rating Downgrades

scholarly journals Do corporate bond rating revisions convey information about earnings and dividend changes?

2012 ◽  
Vol 9 (3) ◽  
pp. 373-393 ◽  
Author(s):  
Steven T. Anderson ◽  
Gurmeet Singh Bhabra ◽  
Harjeet S. Bhabra ◽  
Asjeet S. Lamba
Keyword(s):  
Stock Returns ◽  
Cash Flows ◽  
Corporate Bond ◽  
Bond Rating ◽  
Future Earnings ◽  
Rating Agencies ◽  
Abnormal Stock Returns ◽  
Rating Changes ◽  
Future Cash Flows ◽  
Rating Downgrades

We study the information content of corporate bond rating changes regarding future earnings and dividends. Consistent with previous findings, rating downgrades are associated with negative abnormal stock returns, while rating upgrades appear to be nonevents. For downgrades, earnings decline in the two years prior to and the year of the rating change announcement but increase in the year after the rating review. We also find that rating downgrades are followed by a subsequent downward adjustment in dividends. While rating upgrades follow a period of rising earnings, they do not signal any increase in future earnings and no subsequent dividend adjustments are observed. Overall, our results indicate that rating agencies respond more to permanent changes in cash flows and provide little information, if any, about future cash flows.

Why do stock prices react to bond rating downgrades?

2003 ◽  
Vol 29 (11) ◽  
pp. 93-107 ◽  
Author(s):  
Yongtae Kim ◽  
Sandeep Nabar
Keyword(s):  
Stock Prices ◽  
Bond Rating ◽  
Rating Downgrades

Equity short selling and bond rating downgrades

2015 ◽  
Vol 24 (1) ◽  
pp. 89-111 ◽  
Author(s):  
Tyler R. Henry ◽  
Darren J. Kisgen ◽  
Juan (Julie) Wu
Keyword(s):  
Short Selling ◽  
Bond Rating ◽  
Rating Downgrades

Information Transfer Effects of Bond Rating Downgrades

2010 ◽  
Vol 45 (3) ◽  
pp. 683-706 ◽  
Author(s):  
Philippe Jorion ◽  
Gaiyan Zhang
Keyword(s):  
Information Transfer ◽  
Transfer Effects ◽  
Bond Rating ◽  
Rating Downgrades

Revisiting Post-Downgrade Stock Underperformance

2016 ◽  
Vol 32 (2) ◽  
pp. 271-299 ◽  
Author(s):  
Alfred Zhu Liu ◽  
Le Sun
Keyword(s):  
Stock Returns ◽  
Default Risk ◽  
Recovery Effect ◽  
Bond Rating ◽  
Early Signal ◽  
Long Run ◽  
The Difference ◽  
New Evidence ◽  
Rating Downgrades

Prior research documents significant negative long-term stock returns following bond-rating downgrades. Some downgraded firms are placed on credit watches before downgrades, and we find that the post-downgrade stock underperformance of such firms is significantly reduced. We explore two explanations for the difference in post-downgrade stock performance that are not mutually exclusive: (a) a credit watch placement provides an early signal of the subsequent rating downgrade and gives investors more time to better understand the information content of the downgrade (the early-disclosure effect), and (b) a credit watch placement induces better recovery from credit deterioration for the downgraded firm in the long run (the recovery effect). We find that firms receiving watch-preceded downgrades show better improvements in operating profitability, financial leverage, and overall default risk, and are less likely to be further downgraded in future periods, compared with firms that are directly downgraded. Our findings suggest that the recovery effect is important in explaining downgraded firms’ performance in the long run and provide new evidence in support of the premise in the recent literature that credit watches can induce on-watch firms’ efforts to restore deteriorated credit quality.

The impact of bond rating downgrades on common stock prices in China

2018 ◽  
Vol 6 (2) ◽  
pp. 209-220 ◽  
Author(s):  
Bo Huang ◽  
Lin He ◽  
Shanshan Xiong ◽  
Yirui Zhang
Keyword(s):  
Stock Prices ◽  
Common Stock ◽  
Bond Rating ◽  
The Impact ◽  
Rating Downgrades

Cross-Sectional Regularities in the Response of Stock Prices to Bond Rating Changes

1989 ◽  
Vol 4 (4) ◽  
pp. 460-479 ◽  
Author(s):  
Bradford Cornell ◽  
Wayne Landsman ◽  
Alan C. Shapiro
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Intangible Assets ◽  
Explanatory Power ◽  
Cross Sectional ◽  
Bond Rating ◽  
Price Response ◽  
New Information ◽  
Rating Changes ◽  
Rating Downgrades

This paper examines whether a firm's stock price response to the new information provided by a bond rating change is related to its net intangible assets. A variable used to measure net intangible assets, which is based on current cost data, is found to have significant explanatory power in cross-sectional regressions for the set of rating downgrades.

The Optimal Trade Size Choice of Informed Short Sellers

2008 ◽  
Author(s):  
Benjamin M. Blau ◽  
Bonnie F. Van Ness ◽  
Robert A. Van Ness
Keyword(s):  
Short Sellers ◽  
Trade Size
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